9 Types of Referral Bonuses
By Indeed Editorial Team
Updated February 26, 2021 | Published April 17, 2020
Updated February 26, 2021
Published April 17, 2020
Finding qualified candidates is an important part of creating a strong workforce so using current candidates for referrals provides benefits to everyone involved. With a referral bonus incentive, employees tend to feel more motivated to refer people in their network. In this article, we discuss the different types of referral bonuses and share the advantages of these incentives.
What is a referral bonus?
A referral bonus provides an incentive for employees to recruit qualified candidates for their company. Attracting talent can be challenging for businesses so employees can be a great resource for finding more applicants because they tend to have social networks made up of individuals of similar backgrounds.
Employers typically have a waiting period for the referral bonus to be granted. The candidate an employee finds must remain at the company for a set amount of time to ensure employees are more motivated to find truly qualified candidates. Usually, employees whose jobs are to find candidates are not included in these programs. For example, a hiring manager or human resources professional would not qualify for this bonus. Likewise, an employee typically can only refer candidates who don't have an existing relationship with the company.
Types of referral bonuses
Employers can offer their employees many types of referral bonuses for bringing qualified candidates to the company. Here are nine different types of referral bonuses:
Additional benefits bonus
The most common type of referral bonus is a financial bonus. When employees refer candidates, they receive a certain amount of money from the company dependent on the level of the role they need to fill and the demand of the position.
A social bonus is when an employee receives social recognition and praise for their help in finding candidates. For example, the head of the company may give this employee public praise during a company-wide meeting.
Instead of a monetary bonus, the company will donate this money to the charity of the employee's choice. Employees appreciate having the money go to a good cause in their name.
Tiered bonuses are often given in increments over a period of time and after specific milestones are met. For instance, they may receive an initial bonus when their reference is interviewed and hired and then receive more money if the candidate stays with the company for a certain amount of time.
Raffle bonus programs collect the names of each employee that refers a candidate over the course of specified amount of time. For each additional reference, the employee's name is entered again. Then, the company has a monthly or quarterly raffle to pick one person's name to get a bonus.
Rather than giving out money, a company may choose to give out a valuable prize for referrals. They choose something that most people would want. For example, a new laptop or cellphone would be motivational for most employees.
A vacation bonus could be an all-expense-paid trip or a monetary bonus intended to go toward travel costs. This could also include more vacation time for successful referrals.
Related: Q&A: What Is Vacation Pay?
Additional benefits bonus
Some companies offer employees additional paid time off for referrals. Benefits bonuses could also include work perks such as allowing pets at work or free team lunches.
One useful incentive is for employers and employees to come to an agreement on what bonus the employee receives. This is a way to make employees even more motivated because they will get exactly what they want. Of course, businesses set limitations on custom bonuses.
Advantages of referral bonuses
Companies use referral bonuses to help grow their pool of talent. Both companies and employees can benefit from this incentive. Here are some advantages of referral bonuses:
Save money on staffing. Giving an employee a bonus tends to be more cost-effective than hiring a staffing agency or another human resource professional. Bonuses are also known to improve employee satisfaction, so a referral bonus program can be a win-win situation for a company.
Find better candidates. If an employee is willing to recommend someone, this candidate is likely to be qualified for the position. An employee knows their reputation can be affected by their referral, so they are typically conscientious about who they refer. Oftentimes, companies offer these bonuses to high-performing employees because they find their opinion trustworthy.
Candidates are more qualified. Employees' networks typically consist of people with similar professional backgrounds as them. Many people connect through college or previous work experiences. When hiring for a role similar to this employee, it's useful to ask the employee to refer someone because this contact may have similar qualifications.
When to refer someone for a job
Before referring someone to a job, it's important to make sure they are a good fit. This way you can maintain a good reputation and continue being trusted by your employer. Here is when to refer someone for a job at your work:
They have similar work experience. Find out if the person you have in mind has the skills, qualifications and professional experiences to be a good candidate for this role. Ask them if you can look at their resume and other useful materials to learn more about them.
They seem to be a fit with the work culture. Every work culture is different, so ensure that the person you want to refer would be a good fit for the company. For instance, if the person you know is personable and your workplace has a social culture, they may be a good person to refer.
You want to work with them. Ask yourself if you really want to see and work with this person almost every day. If you worked well with someone in the past, it's likely that you'd enjoy working with them again.
They are excited about the job. If you find that the person isn't enthusiastic about the position, you may want to look for someone else. Recommend someone who is excited about the company and will work hard in their role.
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